Plan for insurers to offer flood cover to all

Insurers will be required to offer flood cover as part of standard home insurance but consumers can choose to opt out, under changes the government insists will reduce premiums.

The federal government will also consult with insurers on a standard definition for flooding and spend $12 million on improving mapping data to help insurers price for risk.

“This proposal means that consumers would always have the option of flood cover available to them, regardless of which insurer they choose, and would need to make a conscious choice about whether or not to purchase flood cover," Assistant Treasurer
Bill Shorten
said. He was outlining the government’s response to the Natural Disaster Insurance Review after the Queensland floods.

The 93 per cent of homes with no flood risk are not expected to pay any additional p remium to cover their risk. Prices will vary for the other 7 per cent of homes with some flood risk; those with extreme risk of flooding may pay about $6777 a year.

Mr Shorten insisted the move would push premiums down by creating a more competitive market. “Our reforms . . . should exert at the very least downward pressure to the extent it can on premiums," he said.

Suncorp
and
Insurance Australia Group
, which write 70 per cent of personal insurance premiums, backed the changes saying they had already decided to offer flood cover across their brands by next year.

But IAG chief executive Mike Wilkins emphasised the need for further mitigation. “While improved transparency and clarity is welcome, it won’t stop flooding from occurring in vulnerable areas," he said.

Suncorp personal insurance chief Mark Milliner said the changes struck a balance between the needs of consumers and insurers.

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The government delayed a decision on the most contentious aspect of the review – the creation of a pool of funds that would enable discounted flood coverage to high-risk housing.

Natural Disaster Insurance Review chairman John Trowbridge said a pool would help address the issue of affordability, but come at a cost. “People who don’t wish to pay a higher price for flood insurance will not have cover, that’s the affordability problem," he said. “In order to deliver the discounts somebody has to pay."

Alluding to the difficulties of such a scheme, Mr Shorten said further consultation would be needed given the “potential financial implications for [state and federal] governments". “It would certainly be a big step for government to step in and underwrite private risk," he said.

Instead, the government’s response suggested mitigation may be a more cost-effective way of managing risk than insurance for high-risk homes.

Insurance Council of Australia chief executive Rob Whelan said 80 of insurers would offer flood insurance by early 2013 regardless of the mandatory cover policy.

“If the government wishes to pursue mandatory cover with an opt-out the industry can cope with that," he said. “But there are some insurers that will need to address their level of capital to back that sort of risk and level of expertise."

The consultation paper, open for submissions until March 30, asks for views on how smaller insurers would be affected by mandatory flood cover and if it might force them to exit the market. A two-year transition period is proposed for the changes.